Archive for the ‘HMRC’ Category

…and then suddenly you look around and see that you haven’t posted for a month, because – overwhelmed by the futility of it all – you realised that there wasn’t anything to say. And yet, and yet…

There was a point where there were no open consultations from HMRC at all. For perfectly sensible reasons (change of Budget date, the enormous administrative changes going on in HMRC and, of course, the reduction in flow of legislation from clearing the decks for Brexit) but still a bit concerning. Maybe no public consultations, but were there still those cozy chats with “stakeholders”? (Was there an “annual stakeholder conference” at all this year? Or has it happened and been kept wery, wery quiet?)

But normal service has resumed. We are back to consultations: four of them, in fact, if we are to believe the gov.uk consultations page, sorted for “open consultations” from HMRC…

So gov.uk’s “consultation” page manages to list consultations like, oh, the Forestry Commission’s plans to change public access to open access land at Harwood Village in Northumberland, (See here) but not “eight policy papers” from HMRC?

It’s August, Parliament is not in session, Big Ben’s bongs are silent: yet there are still 62 open consultations listed on gov.uk. Less is more, guys, please! (At least, in the sense that we want less legislative activity and more administrative competence from our government, not that we want fewer consultations on what legislation they DO introduce, of course.)

However – should you still be sitting in an office somewhere idly reading blog entries and pretending it’s work – there is another way you can contribute to the government’s developing policy and administrative agenda: yes, you too can Help Make Gov.uk Better by joining the panel of service users contributing to their research.

Yes, I’ve joined.

No, they still haven’t found a way of listing consultations in the order in which they close. Sigh.

Great news yesterday, with the announcement that Making Tax Digital has been postponed and that only businesses with a turnover over the VAT threshold will have to keep digital records until, well, this government has either gone or has consolidated itself enough to be able to get the legislation through.

This is the best of all possible worlds – or at least it is at first sight. Because of course HMRC needs to have a modern computer system that isn’t held together with string, prayer and for all I know a couple of floppy disks. Of course we should be able to log on and see our tax returns already pre-populated with the information HMRC already knows about us, the stuff from our P60s and bank interest and what have you. MTD is a customer service imperative.

The problem is that the Treasury won’t pay for that kind of thing: it had to be pitched as a project that would pay for itself, and that’s when you get into the ridiculousness of trying to make teeny tiny businesses that keep perfectly adequate paper records move online or perish, in the absurd belief they’ve all got seventeen grand or so stuffed down the back of the sofa.

So keep the good stuff, the modernisation of the online interface, and ditch the bad, the mandation/penalty routine?

Does HMRC still get the funding to upgrade its computers to MTD and to do the necessary work on pre-population without the spurious promise of resultant tax gap closure? I can’t tell from the accounts. Did they get MTD funds in 16/17 and will they get the rest in 17/18 and beyond. I can’t tell.

There’s a hung parliament. Things are moving quickly: in my head, I imagine someone taking on a new job, running “legislative affairs” like Josh Lyman in the West Wing. Someone whose job it is to ring round the new MPs to see if they will stand for this policy or that, as each new idea for the Queen’s Speech has to be fought through separately.

Leaving aside my fantasies about there being someone competent and grown up behind the scenes, let’s look for a moment at what a hung parliament means for taxes?

Three things. First of all, there’s unlikely to be any huge legislative change. It’s entirely possible that the proposals to make it compulsory for businesses to keep their records on an app or computer programme and update HMRC four (five?) times a year, MTD (“Making Tax Digital”) for short, will fall. Why would anyone back MTD when it is going to be as popular as a cup of cold sick with small businesses once they learn how it will affect them? Kick it down the road and make it Someone Else’s Problem, would be my instinct.

Second, the difficulty in making legislative change is unlikely to apply to actual tax rates: there are different rules. But then why would a “continuity” government want to change the rates they themselves introduced five minutes ago? They may have to give sweeties to their supporters (abolition of APD for Northern Ireland, would be my best guess from the weekend press).

But the third thing is that administratively, things will carry on much as before. The rule for the Civil Service is to carry on doing your job until someone tells you differently. So the idiotic decision to carry on with the “building our futures” plan and move HMRC into big lumps instead of a distributed network of local offices will probably carry on. There will be a new Minister, after all. (Jane Ellison lost her seat so there will be a new Financial Secretary to the Treasury but at the time of writing I can’t see an announcement of who replaces her) so there is no-one with a vested interest in saying “no” and the inertia of “keep calm and carry on” may let this go through.

I think that’s a shame: you may not. But what IS a shame is that there will be no will to change the way policy is made. When the coalition government came in there was a will to do things differently and the political space to think them through . No-one had a vested interest in continuity but in Getting Things Done. So we had Making Tax Policy Better and the invention of the TIIN. Sigh. Ah well, business as usual, at least for a while.

Imagine you’d agreed to become a school governor. Only at a meeting the day before you joined, they decided to sell off the playing fields, appoint a new headmaster and turn the school into an academy. You’d be a bit miffed, right? Because you agreed to help with the running of a school but they made it into a completely different kind of school before you had a chance to influence its direction.

It’s an analogy. The real thing is here – the report in Civil Service World that says HMRC has signed contracts for new premises during the pre-election “purdah” period. It is no secret that I think HMRC’s “Building our Futures” plan to close down its local network and move to massive regional centres is a bad idea (see here, here and here for example).

It’s also no secret that HMRC has a truly awful record of negotiating property deals (see the Mapeley deal, where it sold and leased back its own buildings via an offshore entity) and it has been reported, for “Building our Futures” that HMRC has signed inflation linked 25 year contracts with no break. Seriously? 25 years ago I was working in HMRC and we were worrying about whether we had the right number of smoking rooms and filing space, and were there enough plugs for the new computers – who knows what accommodation will be appropriate for whatever the revenue authority looks like in 2042!

HMRC get a bad idea and run with it – nothing particularly new there (VATMOSS, MTD…) but this is the day before a bloody election. If there’s a new government on Friday they may well want to look again at how HMRC is organised. Having the civil service distributed in local offices amongst the people they serve is, surely, a better way of organising society than corralling them all into Fortresses Of Doom. Signing contracts in the quiet period before an election is shocking, and has the appearance of an attempt to railroad the new government into acting on a bad idea of the old. If there’s a different government on Friday I hope the first thing they do is repudiate any such contracts, discipline the people who signed them, and have a proper look at how a modern government delivers its services.

My MP is Nick Clegg, the former Deputy Prime Minister. He has a pretty good office set up, so that when constituents write to him there is usually some kind of action taken. I took my own advice and wrote to him about MTD, specifically about the TIIN not supporting the change and asking him to make this point in the debates on the legislation.

What his office actually did, of course, was send my email on to the Treasury and then send me the reply.

Here are some extracts from that reply:

I am pleased that your constituent agrees that the overall direction of travel towards a more digital tax system is the right one.

I have already written about that one: practically everyone who replied to the consultation used the tried and trusted formula of “yes, and, but-”

The Government has listened carefully to the wide range of views put forward about the MTDfB proposals. Most commentators were positive about the vision of a fully digital tax system that matches what we are increasingly used to from interactions with other service providers.

Yes, that’s the “yes” part of the argument. Yes of course the UK should invest in a modern digital HMRC. Give HMRC the money to improve its service and we’ll applaud.

However the speed of implementation, and the capability of those in scope to adapt, alongside the costs of doing so, were all key areas of feedback.

This is the point at which the letter stops being a response to the points I actually raised and becomes a generic. I asked about the TIIN not providing evidence that the rewards of mandation justified the costs.

In response, the Chancellor announced at Spring Budget 2017 a significant change to the timetable, which will give unincorporated businesses (including landlords and the self-employed) more time to prepare for the changes. Those below the VAT threshold will not have to keep digital records and update HM Revenue and Customs (HMRC) quarterly until April 2019. As well as giving them (and their agents) more time to prepare, it will also ensure two full years of testing of the new system and services before they become mandatory for this group. The Government has already responded to other areas of feedback, such as exempting those with an annual turnover below £10,000 from mandatory use, making free software available for the smallest businesses with the most straightforward affairs, and accepting the continued use of spreadsheets (as long as they fully meet the key MTDfB requirements) as a form of digital record.

Sorry, but this is more boilerplate blah, not responding to the actual point at all.

Let me also set out why we are proceeding with these important reforms. The Government is investing significant sums to improve the tax system for all taxpayers, and deliver a modern digital service. There is a growing appetite for this, with millions already using their digital tax accounts to view their liabilities and payments, to claim back overpaid tax, or renew their tax credits.

Now we’re getting somewhere: we’ve had the “yes” and a bit of the “and” – now let’s see if there’s any response to the “but…”

While most businesses want to get their tax right, the amount of tax not collected due to taxpayer error and carelessness is now around £8 billion a year. This not only costs the Exchequer, but it also causes businesses cost, uncertainty and worry when HMRC has to intervene to put things right. MTDfB will reduce the tax gap caused by error by requiring businesses to keep a digital record of their income and expenditure, using software or an app, and to update HMRC quarterly with a summary of that data.

Will it, though? Will recording in an app or online actually cut down on errors and mistakes or will it add more and interesting ways to make errors? And where does the figure of £8 billion come from and how is it calculated? At the same time as Nick Clegg was sending on this correspondence, HMRC were responding directly to me on my FoI request for the underlying computations producing the figure for tax allegedly lost. In summary: they still say no.

Your constituent suggests that MTDfB should be a voluntary scheme. These reforms will deliver a better and more modern customer experience for businesses, where they can do everything they need to digitally. They will have greater certainty over their tax affairs, confidence that they have got things right, and a clearer in-year picture of their evolving tax position, allowing them to plan their cash flow more effectively. More timely digital record keeping will lead to fewer errors, thereby reducing the likelihood of an unwanted HMRC intervention. A voluntary scheme would deliver only a fraction of these benefits.

Would it, though? If MTD is really going to be a better way, wouldn’t people want to gain the alleged benefits by joining it?Or are we not talking about benefits to the taxpayer at all, but this mythical seventeen grand all small businesses have lost down the back of the sofa?

I would like to reassure your constituent that quarterly updates do not amount to quarterly tax returns. The software will produce a summary of income and expenditure for the quarter using the information that the business has already recorded, and prompt them to send that to HMRC. The update process will be light touch, not at all equivalent to the current annual tax return. There is no requirement for the update to be done by an agent, no penalty for inaccuracy in the update, and no requirement to pay alongside the update.

Are you reassured? I’m not reassured, not even a little bit.

HMRC is introducing the changes gradually, and piloting them thoroughly before mandatory use begins in April 2018 for unincorporated businesses above the VAT threshold. HMRC is running a large-scale pilot and plans to test with several hundred thousand businesses by March 2018, including those who do not currently use software at all, or who may be less confident in moving to digital.

March 2018 is just next year. Where is the software? Where do people sign up? How long will the trial last and when will the results be out? How will success be measured and who will do the measuring? There just plain isn’t *time* to do a proper trial before mandation kicks in.

At Spring Budget 2017, HMRC published an updated impact note for Making Tax Digital (MTD). The changes will reduce error on an ongoing basis by around 10%. MTD will contribute an additional £1.9 billion to the public purse over the next 5 years and just under £1 billion per year thereafter.

They’re called TIINs. This one doesn’t show that the benefits justify the cost. (It really doesn’t. It shows them as the same, with the costs front loaded and the theoretical benefits off some time in the fuzzy future. You wouldn’t buy a fridge on that basis, let alone an intrusive system that will make digital slaves of half the nation.)

We recognise that there will be costs in the transitional period for some businesses, while also recognising that all businesses are different. Transitional costs may be lower for businesses already using digital tools, or where they are eligible to use free software. Businesses that have limited existing digital capability may need to purchase hardware and software, so initial costs may be higher, but net savings will start to be made from 2021-22 onwards. HMRC will ensure that the transition to digital is as smooth as possible and is committed to making MTDfB work for its customers, modernising its services for the benefit of all UK taxpayers.

Boilerplate blah, nothing to do with anything I had asked.

HMRC will start to ramp up its communication activity to raise awareness amongst the business community during the live trial. Agents and the software industry will be key partners in achieving this. As the different start dates for different sizes of business approach, HMRC will ensure those affected by the changes are aware of any new obligations. As with any change to the way people interact with the tax system, HMRC will focus on making sure customers have the right information well in advance of any changes coming into effect.

Because HMRC has a long history of being good at this kind of thing, right? I mean, right??

Please pass on my thanks to Ms Bradley for taking the trouble to make us aware of these concerns.

HMRC has a long record of enforcing compliance with direct taxes by hitting taxpayers with a bigger and bigger financial stick until they engage. Readers with long memories may recall the old method of estimated assessment, where a tax return was obtained by estimating income and profits and, if no return was received, estimating next years’ higher and higher and higher until finally we had little old ladies with tens of thousands of pounds of alleged income in tears on the doorsteps of accountants.

More recently there were cases of absurd penalties racking up under the C.I.S. system. And there is of course the notorious hundred pound penalty for failure to submit a tax return on time. This began as the lesser of £100 or the tax due: now it is simply £100 even if your tax bill as a result of the return is zero.

It is my contention that HMRC has very little understanding of the ecology of taxpayers with earnings at or around the nil rate band limit. This was evidenced in the last few years in the VATMOSS debacle (this blog, ad nauseam) where the tax authorities failed to engage with the very smallest digital entrepreneurs, principally because they had no idea that such businesses existed in the first place. The HMRC stakeholder model makes it hard for such people to engage because on an individual basis it takes up too much time and energy to deal with HMRC one-on-one, and none of the existing stakeholder organisations represent such businesses: the entry level for the Federation of Small Businesses, for example, at £99 for a start up or £172 thereafter, is prohibitively expensive if one is earning 10,000 a year.

So if we accept that HMRC’s pattern is to use disproportionate financial penalties on small businesses and it has little understanding of the very lowest earner, it is easy to see how the disastrous affair of the tax credits outsourcing program came to be. The PAC report published today goes into full detail but there are a couple of additional points worth noting.

Firstly the outsourcing of work which ought rightfully to be done by the civil service. It has always been thought morally dubious (and in my opinion rightly) to outsource the collection of tax to a profit making entity. How is it not incorrect, therefore, similarly to outsource the payment of small amounts to the poorest members of society?

Secondly there is the question of control of contracts and external work. As you will know, I am not sanguine about the possibility of Making Tax Digital for Business working as intended and this is largely because HMRC have over the years lost their in-house expertise in dealing with computerisation. Combine this with the rumoured walking away of their own consultants because of the changes to IR35 rules, it looks as though the problems with tax credit payments are merely a foreshadowing of a shit storm heading HMRC’s way.